Question: About your September 30, 2023, column titled “The indispensable role of insurance-friendly improvements” on The Mercury News and East Bay Times websites:
In your column you outlined crucial steps for home sellers to aid buyers in securing hazard insurance. As first-time homebuyers navigating a competitive market — where we’ve already faced setbacks in multiple-offer situations — your insights gave us much to consider.
However, our buyer’s agent has a different perspective. Contradicting your column, he asserts that obtaining hazard insurance is “not a problem” and advises us to write purchase offers without contingency measures. Given the risks involved, including the potential loss of our earnest money deposit if we fail to complete a sale, his confidence is perplexing.
Why is our agent so assured about securing hazard insurance despite the proactive steps you suggest sellers take?
Answer: Perhaps your agent is relying on the backup plan for obtaining hazard insurance on properties: The California FAIR Plan.
The About section of its website opens with the following: “The California FAIR Plan Association was established to meet the needs of California homeowners unable to find insurance in the traditional marketplace. The FAIR Plan is not a state agency, nor is it a public entity. There is no public or taxpayer funding.”
The FAIR Plan is a syndicated fire insurance pool consisting of all insurers licensed to conduct property/casualty business in California. The FAIR Plan was established by statute (California Insurance Code sections 10091 et seq.) in August 1968 as an insurance placement facility.
Around the country, real estate associations sponsor weekly localized meetings where agents can share industry news, promote property listings and listen to guest speakers. Insurance agents spoke annually. Not anymore. Nowadays, insurance agents and brokers are the most sought-after guest speakers. Full stop.
I took detailed notes this week while an insurance broker was presenting at a local weekly meeting for real estate agents. Here are just the top 10 takeaways:
1. The insurance landscape is shifting. Prepare for stricter underwriting, increased scrutiny and potential delays in securing hazard insurance.
2. Three key factors determine home insurability: the property’s location, its condition and the buyer’s profile. All three must pass muster.
3. Fire risk is the biggest location-based concern. Don’t rely on internet-generated natural hazard reports alone; invest in proper insurability reports for clarity.
4. Age and material of the roof, wiring updates, HVAC/plumbing upgrades and past claims history — they all matter: A well-maintained home is insurable. Encourage sellers to address potential red flags before listing the property on the multiple listing service (MLS).
5. The homebuyer’s portfolio matters: Insurance companies consider an applicant’s entire insurance portfolio (not just the home purchase) when calculating risk and pricing.
6. Even settled insurance claims can impact coverage: Sellers, beware! Past insurance claims, even closed ones, can affect a property’s insurability. Transparency is key.
7. Start the insurance process early, ideally 30 days before closing or even earlier in high-risk areas. Time is your friend.
8. Utilize reputable online tools to gauge initial fire risk, flood zone status and replacement cost estimates. It is a good starting point for informed discussions.
9. The Inspection Dance: Don’t Wait or Risk a No-Show: Inspections may occur later in the process, but uncovered issues during inspection can derail the entire approval process. Encourage thorough pre-listing inspections.
10. HOAs in the Hot Seat: Communal Responsibility & Coverage Proof: Homeowners associations also face scrutiny. Ensure proper exterior maintenance and proof of adequate collective insurance coverage for all members. Homeowner association inspections for balconies and elevated wood structures are causing a problem.
See my YouTube video on Senate Bill 326, also known as The California Balcony Bill here.
Bonus tip: Communication is king. Keep all parties informed, from home sellers to homebuyers to insurance companies. Transparency and proactive measures can smooth the path to securing essential hazard insurance.
Your buyer’s agent seems nonchalant. Make sure he has an insurance policy for that character trait. It is called Errors and Omissions (E&O) insurance. As an extra “insurance policy,” develop a relationship with an insurance broker ASAP. Unlock the expertise you need. Talking to your insurance broker before drafting an offer on a property will be an invaluable step. You need the expertise your buyer’s agent lacks.
Questions? Or are you or someone you know navigating life’s transitions? Let lauded negotiator Pat Kapowich make your next move easy. Visit Kapowich’s website for free area housing data, insights and trends. Or put his artful blend of specialized credentials, decades of experience and endorsed skill set to work for you. Do not just make a move — make the safe move. Contact Pat today. Full-service Realtor Pat Kapowich, a career-long consumer-protection advocate, Certified Residential Real Estate Brokerage Manager, and Certified Trust and Probate Specialist
Office: 408-245-7700; [email protected]
